This is a recent article that appeared in the Hartford Business Journal that was written by our friends at Pullman & Comley, Brion J. Kirsch and Brad N. Mondschein.
By now, everyone has heard about going “green” and in some form or another, has taken steps to live a “greener” lifestyle, whether through recycling paper and household items, shopping with reusable grocery bags, installing renewable energy sources or driving a hybrid car.
Going green, as it relates to commercial real estate, has been defined as constructing a building, or space within a building, and implementing (and following) processes that are environmentally responsible and resource-efficient from the earliest stages of siting, through design and construction and into the operation, maintenance, renovation and eventual deconstruction.
Landlords and tenants are beginning to realize that there are significant benefits from going green, including reduced maintenance and operating costs, increases in tenant retention rates and a general competitive advantage in today’s challenging and constantly changing marketplace.
According to the United States Green Building Council (USGBC), green commercial buildings consume less energy and fewer resources in comparison to the average commercial building; on average, 26 percent less energy; 13 percent lower maintenance costs; 27 percent higher occupant satisfaction and 33 percent less greenhouse gas emissions than conventional buildings.
However, green leases present a new array of unique issues to both landlords and tenants and while experienced landlords and tenants may be well versed in standard commercial leases, they may not be familiar with assessing the risks and challenges associated with a green lease. All parties must carefully examine how to incorporate the sustainable and environmentally responsible building elements and processes into the lease agreement and how these components could impact the value of the property, the use of the premises and the overall relationship between the landlord and tenant. Some important issues are:
• The Standard: A green lease is a typical commercial lease that incorporates sustainability and environmentally responsible concepts. In order to achieve a meaningful green lease, the parties need to have, and the green lease needs to reflect, a clear understanding of the specific “green objectives” (the practices and standards) to which the parties, the building and the uses must satisfy. The standard is the cornerstone of the lease and the point from which success or failure is to be measured. However, each party needs to understand that the standards cannot be too narrow or prescriptive, because they could become outdated or irrelevant during the term of the lease. If a specific certification, such as LEED, is to be obtained and maintained, the lease should spell this out clearly.
• The Fit Up: Inevitably, as part of a new lease, the tenant’s premises will need to be improved or fit-up. Regardless of whether the landlord or the tenant is performing the improvement work, each party will need to know and specify what level of “greening” the premises must satisfy. This should include specifying acceptable construction materials and finishes and whether or not the constructing party is to seek a LEED or other green certification for its premises.
• Default Triggers: Both the landlord and tenant will want to ensure that green certifications (if applicable) or green objectives are achieved and then prohibit the other from doing (or not doing) anything which would adversely affect them. Complex issues such as identifying the party responsible for the failure, determining whether the failure is capable of being remedied (and if so, then by whom), if either party has the right to impose fines or offset rent as a result and quantifying damages, all need to be considered early on and then addressed. While there is yet to be a case in Connecticut that has tested the nature or extent of liability related to failure to obtain and sustain a green certification or objective, as with all business ventures, the parties should evaluate the risks, clearly delineate responsibilities and include provisions for failure to obtain or maintain the objectives.
• Incentives/Credits: In connection with the construction and/or operation of a green building, the landlord and/or tenant may be eligible for various credits and incentives, such as income tax credits, renewable energy credits (Green Tags) and energy efficiency credits (White Tags). These credits are a few of the many incentives to building green and, depending on the type of lease and how operating and utility costs are shared (or not shared), which party gets the benefit of these credits is an important if not vital issue. Consideration should be given up front as to how any possible credits or incentives will be allocated between the parties, keeping in mind that some credits may be earned during the term (or construction), but payable later.
Green building will continue to grow and likely become the best practice in the construction and development industry, inevitably leading to more and more green leases. With increased focus on going green, it is imperative for landlords and tenants to understand the effects of and the issues arising from green leases, so that both parties can address and resolve the unique issues involved and foster a successful — and environmentally responsible — leasing relationship.
Brion J. Kirsch is an attorney in the real estate and green development practices at Pullman & Comley, LLC in Bridgeport; Brad N. Mondschein practices in the area of alternative energy and is chair of Pullman & Comley’s green development practice in Hartford. They can be reached at bkirsch@pullcom.com and bmondschein@pullcom.com.
Filed under: Green Attitudes, Green Buildings, Green Law |
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This past week, I learned about a company based in Norwalk, Connecticut that is a global leader in the manufacture of yarn-based inter-dental cleaning products designed for people with gum diseases and dental bridges and implants. Simply put, they make really good dental floss. What’s even more intriguing is that the product is considered solar floss because the company, Thornton International, has 264 solar panels atop its corporate headquarters in Norwalk. 
